Over any five-year period, there will a period when any fund manager's performance statistics are suitably impressive, Mr Johnson said.

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"People think: 'As long as I'm different enough from the index, and I'm showing the performance numbers, [that's enough]'. People should be more honest about that," he said.

Mr Johnson said that while Australian equities indices returned investors close to zero for the year to 30 June 2016, the average stock returned more than 10 per cent.

"So if you threw a dart at a dartboard, you would have done 10 per cent," he said.

"You’ve got all of these fund managers running around saying: 'We outperformed the index by 10 per cent'.

"Well, you just need to be a little intellectually honest about that and point out that the index wasn’t representative of the average stock over the course of the year."

As for the current trend towards absolute return funds, he said it is "unlikely to end very well".

"Most of them are high cost structures in order to take the volatility out [of the portfolio]. We’ve seen five or six market neutral products come to market this year that have performed pretty abysmally since January," Mr Johnson said.

"It was all off the back of 2015, when they were all short resources and long everything else – and that produced 20 per cent returns.

"I’m not saying it was the wrong decision – it was the right decision. But there’s nothing 'neutral' about it. It’s a leveraged bet."

Investors are better off with a reasonably balanced portfolio and accepting the volatility that comes with it, he said.

"Paying lots of fees to take some of that volatility out doesn’t make a lot of long term sense. But it’s particularly marketable at the moment, because the blue chips have performed poorly," Mr Johnson said.